How do I finance a ground-up self storage build?
Ground-up self storage construction typically finances through SBA 504 when you will operate the facility, at 10 to 15 percent down with the CDC second mortgage funding at completion, or through private and bank construction lenders at 65 to 80 percent of total cost for passive or larger institutional development. Every construction lender on self storage requires a feasibility study showing supply, demand, and achievable rental rates before approving the project.
The two paths
| Path | Down payment | Rate structure | Best for |
|---|---|---|---|
| SBA 504 | 10 to 15 percent | Bank interim rate during construction, CDC fixed at completion | Owner-operators |
| Private or bank construction loan | 20 to 35 percent of cost | 9 to 13 percent interest-only during build | Passive owners, larger projects |
Ranges vary by lender.
The feasibility study
Every serious storage construction lender requires a third-party feasibility study covering existing supply within 3 to 5 miles, population and household growth, current rental rates at competing facilities, and a projected lease-up timeline and rate for the new facility. Lenders will not proceed without one, and a weak study, showing oversupply or slow projected lease-up, is the most common reason storage construction loans are declined.
What the lender requires
- Land, either owned or under contract, valued at appraised or purchase price.
- Approved permits and site plan.
- A fixed-price contract with a contractor experienced in storage construction, which has specific requirements around unit mix, climate control, and access systems.
- A line-item budget including the security and access control systems, signage, and paving, with a 10 percent contingency.
- The feasibility study.
- Reserves of 10 to 15 percent of the loan amount, plus an interest reserve covering construction and lease-up.
Lease-up projections
Most lenders expect stabilized occupancy, typically 80 to 85 percent, within 24 to 36 months of opening. The interest reserve should cover the construction period plus this lease-up window, since the facility produces little or no income until units fill.
SBA 504 mechanics for construction
The bank funds an interim construction loan; the CDC debenture funds at completion once the facility is built and operating, locking a fixed rate for 20 or 25 years on that portion. Your business must plan to operate the facility at completion to maintain SBA eligibility.
Where storage construction loans get stuck
- A feasibility study showing an oversupplied market.
- A budget that omits access control and security systems, which storage lenders specifically check.
- No experienced storage operator or management company lined up.
- Land not yet zoned for storage use.
How CommFi handles it
Our lending desk reviews the feasibility study and the budget before the loan goes to a lender, and prices SBA against private construction options. It funds direct when it fits, and when a lender experienced in storage construction is the better match, the desk searches a database of 7,000+ lenders and the ones that build storage compete for the file. Zero upfront fees.
Related reading
Related questions
- How do I finance building a new self storage facility?
- Through SBA 504 at 10 to 15 percent down if you will operate it, or a private or bank construction loan at 20 to 35 percent down otherwise.
- Do I need a feasibility study to build self storage?
- Yes. Every serious lender requires a third-party study of supply, demand, and achievable rents before approving the construction loan.
- How long does self storage take to stabilize after opening?
- Typically 24 to 36 months to reach 80 to 85 percent occupancy, and the loan's interest reserve should cover this period.
- Can I use SBA 504 for self storage construction?
- Yes, if you will operate the facility as your business, with the bank funding construction and the CDC second mortgage funding at completion.
- What does a storage construction lender check that others don't?
- Access control and security system budgets specifically, along with the feasibility study's rental rate and lease-up assumptions.
Property developer and licensed appraiser. 22+ years in real estate: TIC conversions, multi-unit redevelopments, mixed-use, fix and flips, commercial DSCR.